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15 landmark judgment on section 138 Negotiable Instrument
kartik mago 8 Mar 2019

15 landmark judgment on section 138 Negotiable Instrument

1.Smt. Asha Baldwa v. Ram Gopal

This is one of the landmark judgments in Section 138. The petitioner had filed a petition under Section 482, CrPC to quash the proceedings instituted against him  for committing an offence under section 138. He was alleged to have handed over the dishonored cheque to the respondent . She consented to such giving of the cheque. Hence, she is responsible for the consequences of giving the cheque.

The contention of the petitioner was that in accordance with Section 141(2) of the Negotiable Instruments Act, 1881, the allegations can be made against the Company only or its Partners or Directors only when the offence was committed with the consent or connivance or, is attributable to, any neglect on the part of, any director, manager, secretary or partners.

The Court held that the aim is that the person who promises to pay abides by his promise. Section 139 provides that it shall be presumed that the holder of a cheque received the cheque of the nature referred to in Section 138 of NI Act for the discharge, in whole or in part, of any debt or other liability.

 

Canara Bank vs Canara Sales Corporation & Ors.

The Supreme Court looked into the matter of cheque being presented for encashment and containing forged signatures.

It held that in cases where a cheque is presented for encashment but has forged signatures on it, the bank is freed from is legal liability of making any sort of payment against such cheque. If the bank made any payments in favor of such cheques, it would be concluded that the bank has acted anti-law by debiting the customer with amounts of the cheque.

 

Dalmia Cement Ltd. V. Galaxy Traders & Agencies Ltd.

Criminal Appeal No.957 of 2000

In this case the Hon’ble Supreme Court of India referred to the object of section 138 of Negotiable Instrument Act. The court observed that when the act was enacted, section 138 was incorporated with a specified object of making a special provision by incorporating a strict liability so far as the cheque as negotiable instrument was concerned.

Kishan Rao v. Shankargouda

The Supreme Court has reiterated on the scope of revisional jurisdiction of a High Court.

The Court held that the High Court is not to interfere with any of the Magistrate's order unless it seems to be completely unreasonable or there is no consideration of relevant material. Also, the Magistrate's order cannot be set aside on the mere ground that no other view on the issue is possible.

 

Jayalakshmi Nataraj v. Jeena & Co. (1996)

In this case, the Court adjudicated upon a Managing Director's liability under Section 138 of the Negotiable Instrument Act of 1881. It held that even though the Managing Director does not administer the day to day activities of the company, he/she can still be held guilty irrespective of the fact that he/she was unaware of the affairs.

 

Modi Cements Limited v. Kuchil Kumar Nandi (1998) 3 SCC 249

 

A three Judge bench of the Supreme Court held that even if a notice is issued to stop the payment of money before the payee has deposited the cheque with his bank, the act of crime is committed. Once the cheque is issued by the drawer, it must be presumed that just because a notice is issued by the drawer to the drawee or to the Bank, it will not stop action under section 138 by the holder of the cheque in due course. Thus, defense under strict interpretation of “insufficiency of funds” stands weak to some extent.

 

M/s Meters and Instruments Private Limited & Anr. v. Kanchan Mehta

A bench of Supreme Court comprising of two Judges made some points clear regarding dishonor of cheque. Directions were also issued  for speedy trial of such cases under Section 138 of the Act of 1881.

Modern technologies were opined to be adopted to enable speedy disposal of the Section 138 cases. The Court noted that:

"Use of modern technology needs to be considered not only for paperless Courts but also to reduce overcrowding of Courts. There appears to be need to consider categories of cases which can be partly or entirely concluded “online” without physical presence of the parties by simplifying procedures where seriously disputed questions are not required to be adjudicated. Traffic challans may perhaps be one such category.

Atleast some number of Section 138 cases can be decided online. If complaint with affidavits and documents can be filed online, process issued online and accused pays the specified amount online, it may obviate the need for personal appearance of the complainant or the accused. Only if the accused contests, need for appearance of parties may arise which may be through Counsel and wherever viable, video conferencing can be used. Personal appearances can be dispensed with on suitable self-operating conditions."

 Geekay Exim (India) Ltd. v. State of Gujarat (1998)

The Gujarat High Court held that though the element of mens rea is not important under Section 138, such element must be presumed to exist at the instance of every case. This means that the question whether mens rea should be considered or not while adjudicating, varies from case to case depending on their circumstances.

 Jayawati v. Yogesh Kumar Gosain (Delhi High Court)

Another landmark judgment was passed by the Delhi High Court. In this case, the Court drew a distinction between traditional criminal cases and offence under Section 138. The purpose of such distinction was to validate that it is very much within the laws to refer a case of Section 138 for mediation.

Premchand Vijay Kumar v. Yashpal Singh

In this case of Premchand it was held by the Apex Court that upon a notice under section 138 of Negotiable Instrument Act being issued, a subsequent presentation of a cheque and its dishonour would not create another ‘cause of action’ which could set the section 138 machinery in motion. Only 4 Bhaskaran concomitants were spelt out in this judgement instead of 5.

Chandrabolu Bhaskararao’s case

In the case of Chandrabolu, it was held by the High Court of Andhra Pradesh that it is not mandatory for promissory note to be an attestable document even if the signatures of the attesters are taken and after its execution it does not amount the material alteration. So it does not get quashed. So therefore, whether there were attesters or not at the time of its execution is immaterial, more so when its execution is admitted.

Bhutoria trading co. v. Allahabad Bank

It was pointed out by the Hon’ble court that where there are no circumstances that afforded any reasonable ground for believing that the payee was not entitled to receive payment of the cheques, the bank is deemed to have payment in due course.

Bhaskaran v. Shankaran Vaidhyan Balan

In this case, the Two-Judge Bench of the Supreme Court had held that the offence under Section 138 of NI Act can be completed only with the concatenation of a number of acts. However, this ruling was overruled by Supreme Court’s judgment in Dashrath Roop Singh case.

Dashrath Roopsingh Rathod v. State of Maharashtra

A strict approach was applied by the Apex Court in its new judgement which sought to discourage the payer for misusing or carelessly issuing cheques. Thus, due sympathy was shown or given to the drawer.

Infact in this case it was observed by the Supreme Court of India that courts have been enjoined to interpret the law to eradicate ambiguity, and to ensure that legal proceedings have not been used as a device for harassment even of apparent transgressor of law. 

M.M.T.C. Ltd. and Anr. Vs Medchl Chemicals and Pharma (P) Ltd. and Anr. ( AIR 2002 SC182)

The Apex Court held that even though the cheque stands dishonored, the drawer of the cheque is to be held guilty as a complaint under Section 138 is maintainable. The burden of proof lies on the accused to show that he had issued an instruction to stop the payment because of valid reasons. In other words, the presumption as to existence of legally enforceable debt is rebut table as per Section 139. It further held that even a payee or the holder in due course of the cheque can file a complaint under Section 142 of NI Act and it need not necessarily be by a Director or  duly authorized officer as the defect can be cured later. Complaint cannot be quashed.

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